Question

Memorial Corporation makes a special-purpose machine, D4H, used in the textile industry. Memorial has designed the D4H machine for 2017 to be distinct from its competitors. It has been generally regarded as a superior machine. Memorial presents the following data for 2016 and 2017. (Click the icon to view the data.) (Click the icon to view additional information.) Read the requirements. Requirement 1. Calculate the operating income of Memorial Corporation in 2016 and 2017 2016 * Requirements Revenues Costs Direct material costs Manufacturing conversion costs 1. Calculate the operating income of Memorial Corporation in 2016 and 2017 2. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2016 to 2017 3. Comment on your answer in requirement 2. What do these components indicate? Selling and customer service costs Total costs Operating income Print Done Enter any number in the edit fields and then click Check Answer. Memorial Corporation makes a special-purpose machine, D4H, used in the textile industry. Memorial has designed the D4H machine for 2017 to be distinct from its competitors. It has been generally regarded as a superior machine. Memorial presents the following data for 2016 and 2017. 0 Data Table - X More Info - X 2016 2017 250 260 36,000 $ 37,000 295,000 300,000 7.25 $ 7.75 290 $ 2,407,000 $ 2,436,000 $ 8,300 $ 8,400 110 customers 100 customers $ 1,100,000 $ 990,000 $ 10,000 $ 9,900 1. Units of D4H produced and sold 2. Selling price 3. Direct materials (kilograms) 4. Direct material cost per kilogram 5. Manufacturing capacity in units of D4H 6. Total conversion costs 7. Conversion cost per unit of capacity (row 6 / row 5) 8. Selling and customer-service capacity 9. Total selling and customer-service costs 10. Selling and customer-service capacity per customer (row 9 / row 8) Memorial produces no defective machines, but it wants to reduce direct materials usage per D4H machine in 2017. Conversion costs in each year depend on production capacity defined in terms of D4H units that can be produced, not the actual units produced. Selling and customer-service costs depend on the number of customers that Memorial can support, not the actual number of customers it serves. Memorial has 78 customers in 2016 and 85 customers in 2017. 290 Print Done

Answer 1

Answer to question No.1
	Calculation of operation income of memorial corporation
	Year-2016	Year-2017
	(Amt in US$)	(Amt in US$)
Revenue-(A)	9000000	9620000
	(250*36000)	(260*37000)
Costs
Direct Material costs	2138750	2325000
	(7.25*295000)	(7.75*300000)
Manufacturing Conversion costs	2407000	2436000
Selling and customer service costs	1100000	990000
Total Costs-(B)	5645750	5751000
Operating Income-(A-B)	3354250	3869000
Answer to question No.2
	Calculation of changes in operating income due to Growth component from 2016 to 2017.
	Revenue Effect of Growth component				360000
	(260-250)*36000
	Cost effect of growth component				11800
	Direct materials
	(295000/250*260)-295000)
	Calculation of changes in operating income due to price recovery component from 2016 to 2017.
	Revenue Effect of price recovery				260000
	(37000-36000)*260
	Cost effect of price recovery component				153400
	Direct materials
	(7.75-7.25)*(295000/250*260)
	Manufacturing Conversion costs				29000
	(8400-8300)*290
	Selling and customer service costs				31900		100	31900	319
	(1100000/110)-(990000/100)*(290*110)/100
c	Calculation of changes in operating income due to productivity component from 2016 to 2017.
	Direct materials					52700
	((300000-(295000/250*260))*7.75
Answer to question No.3
a. comment	Since Manufacturing Conversion Cost wont depend up on number of units produced and depends on number of units of capacity it is suggested to produce up to capacity
	More over It can support up to 110 and 100 customers but only have 78 and 85 customers can increase it customer base by increasing production
b. This components indicates
1	The growth component of the change in the operating income measures the increase/decrease
	in the revenue and costs due to selling more/less quantity units from previous period.
2	Price recovery component indicates change in operating income measures change in the revenue and costs solely due to change in the prices
3	Productivity component indicates change in operating income measures change in product mix as compared with the last year